Ahead of Bell: Construction spending may be up

AP News
Posted: Sep 01, 2011 7:07 AM
Ahead of Bell: Construction spending may be up

Construction spending is expected to have edged up July, but not enough to signal a rebound in the battered industry.

Economists forecast that construction spending rose 0.1 percent in July, according to a survey by Factset. The Commerce Department will issue the report at 10 a.m. Eastern on Thursday.

In June, construction spending rose 0.2 percent to a seasonally adjusted annual rate of $772.3 billion. Still, that about half the $1.5 trillion pace considered healthy by economists. And it left overall spending just 1.2 percent higher than the 11-year low hit in March.

Analysts believe it could be four more years before construction returns to more normal levels.

In June, private residential construction dropped 0.3 percent. A small rise in single-family home building was offset by a big drop in apartment construction.

Private nonresidential building activity rose 1.8 percent, the highest increase since December. Builders spent more to put up hotels, shopping centers and office buildings.

Government building projects fell 0.7 percent to the lowest level since March 2007. Budget cuts at the state and local levels have led to a sharp drop in government spending. Analysts are concerned that the new deficit-cutting agreement that passed Congress on Aug. 2 will result in drops in federal spending that will further slow the overall economy.

Homes are now the most affordable they've been in years. But bargain prices and super-low mortgage rates have done little to boost sales. Economists say it could take several years before the housing market recovers.

Housing has been a drag on the economy and is a key reason the economy has struggled to recover two years after the recession officially ended. Home sales are on pace this year to be the worst in 14 years.

High unemployment, larger down payment requirements and tighter credit are preventing many buyers from entering the market. Many who can afford to buy are waiting because they are worried prices have yet to hit bottom.

Economists believe home prices will fall further once banks resume millions of foreclosures, which have been delayed because of a government investigation into mortgage lending practices. If the U.S. economy slips back into another recession, prices could drop even further.

The pace of sales for previously occupied homes is trailing last year's 4.91 million sold, the fewest since 1997. In a healthy economy, people buy roughly 6 million homes each year.

Sales of new homes dropped in July for third straight month. This year is shaping up to be the worst for sales of new homes on records dating back to 1963.